A subordination agreement is a document by which a company or individual can get more loans than they otherwise could because the lender subordinates the first loan taken by the borrower from a mortgage to a new loan and now the loan becomes the first priority. In other words, this is a written agreement where the new loan amount takes precedence over the first if there is a case of foreclosure. The agreement must mention the term, which must be at least one year. The amount of loan must also be mentioned and it is legally binding.
The other important points to be included in a subordination agreement is the names of both the lender and the borrower, the date of creating the document, the original amount of loan and the new amount, details about the property mortgaged and any additional terms like warranty issues. The document must be signed by both parties in front of a notary officer.
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Sample Subordination Agreement
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